CONSUMERS MAINTAIN CONFIDENCE DESPITE SHOCKS

Written on the 14 September 2016 by James Perkins

CONSUMER sentiment in Australia has held strong despite shocks that typically dent the appetite for spending, such as the Federal election, a reduction in interest rates and the UK's decision to leave the European Union.

That's according to the latest Westpac Melbourne Institute Index of Consumer Sentiment, which shows a 0.3 per cent increase in the month to September, to 101.4.

Westpac's Chief Economist, Bill Evans, says consumer sentiment has been "remarkably stable" over the past six months, with the index averaging 100.3 over that period.

September's reading is 1.0 per cent above this six-month average and also 1.7 per cent over the six-month period to March 2016. It is slightly above the long-term trend of around 100.

"This stability over the last six months has bee despite significant events that can usually be expected to impact confidence: two interest rate cuts from the Reserve Bank and associated reductions in mortgage rates, a Commonwealth Budget, a Federal election, and some major developments offshore such as the surprise UK referendum result and the build-up leading into November's US election," says Evans.

Trends explaining the stability in consumer confidence include that respondents to the survey recalled news items about 'economic conditions' and 'international events' on a much lower scale, showing that the news is assessed to be more favourable than one year ago.

Also, the Westpac Melbourne Institue Unemployment Expectations Index fell from 141.2 in August to 138.4 in September, marking an increase in confidence among Australian workers. The Umeployment Expectations index is down 11.5 per cent over the past year and 10.4 per cent since September 2014.

"The Index was stubbornly high through 2012-2015, so it is very encouraging that confidence seems to be gradually returning to the jobs market," says Evans.

Confidence in the housing market is improving, however the sub-index 'family finances over the next 12 months' fell 2.3 per cent.

Another sub-index, 'economic conditions over the next 12 months' fell by 4.6 per cent, while 'economic conditions over the next five years' increased 1.1 per cent.